UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended June 30, 2008
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
 For the transition period from          to
 Commission file number 001-32548
 NeuStar, Inc.
  Delaware
    
    52-2141938(State or other jurisdiction of 
incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 46000 Center Oak Plaza
Sterling, Virginia 20166
 (571) 434-5400
 þ o
  Large accelerated filer
þ

    

  Accelerated filer
o

    

    Non-accelerated filer o

(Do not check if a smaller reporting company)

  

    Smaller reporting company
o
 o þ




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##### 



NeuStar, Inc.
Index
 PART I FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of December 31, 2007 and June 30, 2008 (unaudited)Unaudited Consolidated Statements of Operations for the three and six months ended June
30, 2007 and 2008Unaudited Consolidated Statements of Cash Flows for the six months ended June 30, 2007
and 2008Notes to Unaudited Consolidated Financial StatementsItem 2. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 3. Quantitative and Qualitative Disclosures About Market RiskItem 4. Controls and ProceduresPART II OTHER INFORMATIONItem 1. Legal ProceedingsItem 1A. Risk FactorsItem 2. Unregistered Sales of Equity Securities and Use of ProceedsItem 3. Defaults upon Senior SecuritiesItem 4. Submission of Matters to a Vote of Security HoldersItem 5. Other InformationItem 6. ExhibitsSignatures
  2




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##### 



PART I FINANCIAL INFORMATION
 
 Item 1. Financial Statements
 NEUSTAR, INC.
 
 CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 December 31,
    
    
    June 30,2007
    
    
    2008(unaudited)ASSETSCurrent assets:Cash and cash equivalents
    
    $
    98,630
    
    
    $
    46,866Restricted cash
    
    
    488
    
    
    
    557Short-term investments
    
    
    100,048
    
    
    
    25,289Accounts receivable, net of allowance for
doubtful accounts of $1,654 and
$2,401, respectively
    
    
    76,632
    
    
    
    68,960Unbilled receivables
    
    
    383
    
    
    
    1,042Notes receivable
    
    
    2,159
    
    
    
    1,860Prepaid expenses and other current assets
    
    
    9,608
    
    
    
    10,763Deferred costs
    
    
    8,281
    
    
    
    10,070Income tax receivable
    
    
    
    
    
    
    10,425Deferred tax asset
    
    
    13,907
    
    
    
    13,399Total current assets
    
    
    310,136
    
    
    
    189,231Investments, long-term
    
    
    
    
    
    
    38,403Property and equipment, net
    
    
    56,191
    
    
    
    67,850Goodwill
    
    
    204,093
    
    
    
    182,291Intangible assets, net
    
    
    36,851
    
    
    
    35,744Notes receivable, long-term
    
    
    759
    
    
    
    Deferred costs, long-term
    
    
    3,575
    
    
    
    2,769Other assets
    
    
    5,056
    
    
    
    4,023Total assets
    
    $
    616,661
    
    
    $
    520,311
 See accompanying notes.
 3




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##### 



NEUSTAR, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share data)
 December 31,
    
    
    June 30,2007
    
    
    2008(unaudited)LIABILITIES AND STOCKHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    9,742
    
    
    $
    9,687Accrued expenses
    
    
    47,501
    
    
    
    40,844Deferred revenue
    
    
    32,236
    
    
    
    33,048Notes payable
    
    
    2,501
    
    
    
    2,525Capital lease obligations
    
    
    3,511
    
    
    
    5,739Accrued restructuring reserve
    
    
    413
    
    
    
    439Income tax payable
    
    
    3,254
    
    
    
    Other liabilities
    
    
    108
    
    
    
    881Total current liabilities
    
    
    99,266
    
    
    
    93,163Deferred revenue, long-term
    
    
    18,063
    
    
    
    14,709Notes payable, long-term
    
    
    5,206
    
    
    
    3,512Capital lease obligations, long-term
    
    
    5,717
    
    
    
    8,942Accrued restructuring reserve, long-term
    
    
    1,793
    
    
    
    1,562Other liabilities, long-term
    
    
    3,866
    
    
    
    4,644Deferred tax liability
    
    
    2,215
    
    
    
    3,878Total liabilities
    
    
    136,126
    
    
    
    130,410Commitments and contingenciesStockholders equity:Preferred stock, $0.001 par value;
100,000,000 shares authorized; no shares
issued or outstanding as of December 31,
2007 and June 30, 2008
    
    
    
    
    
    
    Class A common stock, par value $0.001;
200,000,000 shares authorized; 77,082,161
and 78,750,193 shares issued and
outstanding at December 31, 2007 and June
30, 2008, respectively
    
    
    77
    
    
    
    78Class B common stock, par value $0.001;
100,000,000 shares authorized; 4,538 and
4,538 shares issued and outstanding at
December 31, 2007 and June 30, 2008,
respectively
    
    
    
    
    
    
    Additional paid-in capital
    
    
    293,785
    
    
    
    310,381Treasury stock, 99,286 and 4,942,512
shares at December 31, 2007 and June 30,
2008, respectively, at cost
    
    
    (3,221
    )
    
    
    (128,261
    )Accumulated other comprehensive loss
    
    
    (140
    )
    
    
    (727
    )Retained earnings
    
    
    190,034
    
    
    
    208,430Total stockholders equity
    
    
    480,535
    
    
    
    389,901Total liabilities and stockholders equity
    
    $
    616,661
    
    
    $
    520,311
 See accompanying notes.
 4




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##### 



NEUSTAR, INC.
 
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2008
    
    
    2007
    
    
    2008Revenue:Addressing
    
    $
    26,857
    
    
    $
    32,268
    
    
    $
    53,860
    
    
    $
    62,429Interoperability
    
    
    13,030
    
    
    
    16,551
    
    
    
    27,962
    
    
    
    32,991Infrastructure and other
    
    
    59,806
    
    
    
    71,390
    
    
    
    115,319
    
    
    
    142,202Total revenue
    
    
    99,693
    
    
    
    120,209
    
    
    
    197,141
    
    
    
    237,622Operating expense:Cost of revenue (excluding depreciation
and amortization shown separately
below)
    
    
    23,246
    
    
    
    26,811
    
    
    
    46,324
    
    
    
    51,300Sales and marketing
    
    
    17,649
    
    
    
    20,219
    
    
    
    36,285
    
    
    
    38,943Research and development
    
    
    6,751
    
    
    
    7,754
    
    
    
    13,320
    
    
    
    15,302General and administrative
    
    
    11,271
    
    
    
    15,151
    
    
    
    22,040
    
    
    
    31,633Depreciation and amortization
    
    
    9,375
    
    
    
    10,286
    
    
    
    18,439
    
    
    
    20,406Impairment of goodwill
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    29,02168,292
    
    
    
    80,221
    
    
    
    136,408
    
    
    
    186,605Income from operations
    
    
    31,401
    
    
    
    39,988
    
    
    
    60,733
    
    
    
    51,017Other (expense) income:Interest and other expense
    
    
    (86
    )
    
    
    (3,106
    )
    
    
    (322
    )
    
    
    (3,324
    )Interest income
    
    
    1,146
    
    
    
    1,473
    
    
    
    1,681
    
    
    
    2,841Income before income taxes
    
    
    32,461
    
    
    
    38,355
    
    
    
    62,092
    
    
    
    50,534Provision for income taxes
    
    
    13,312
    
    
    
    15,499
    
    
    
    24,975
    
    
    
    32,138Net income
    
    $
    19,149
    
    
    $
    22,856
    
    
    $
    37,117
    
    
    $
    18,396Net income per common share:Basic
    
    $
    0.25
    
    
    $
    0.31
    
    
    $
    0.49
    
    
    $
    0.25Diluted
    
    $
    0.24
    
    
    $
    0.31
    
    
    $
    0.47
    
    
    $
    0.24Weighted average common shares outstanding:Basic
    
    
    75,825
    
    
    
    72,985
    
    
    
    75,258
    
    
    
    74,616Diluted
    
    
    79,040
    
    
    
    74,904
    
    
    
    79,037
    
    
    
    76,999
 See accompanying notes.
 5




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##### 



NEUSTAR, INC.
 
 UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
 Six Months EndedJune 30,2007
    
    
    2008Operating activities:Net income
    
    $
    37,117
    
    
    $
    18,396Adjustments to reconcile net income to net cash provided by
operating activities:Depreciation and amortization
    
    
    18,439
    
    
    
    20,406Stock-based compensation
    
    
    7,538
    
    
    
    8,894Amortization of deferred financing costs
    
    
    72
    
    
    
    86Excess tax benefits from stock-based compensation
    
    
    (13,907
    )
    
    
    (2,147
    )Deferred income taxes
    
    
    1,828
    
    
    
    2,526Provision for doubtful accounts
    
    
    1,301
    
    
    
    1,213Other-than-temporary loss on investments
    
    
    
    
    
    
    2,086Impairment of goodwill
    
    
    
    
    
    
    29,021Changes in operating assets and liabilities, net of acquisitions:Accounts receivable
    
    
    (9,190
    )
    
    
    7,035Unbilled receivables
    
    
    537
    
    
    
    (659
    )Notes and securitized notes receivable
    
    
    977
    
    
    
    1,058Prepaid expenses and other current assets
    
    
    (650
    )
    
    
    (958
    )Deferred costs
    
    
    (974
    )
    
    
    (983
    )Income tax receivable
    
    
    11,710
    
    
    
    (8,278
    )Other assets
    
    
    (528
    )
    
    
    955Other liabilities
    
    
    34
    
    
    
    1,326Accounts payable and accrued expenses
    
    
    (8,867
    )
    
    
    (6,315
    )Income taxes payable
    
    
    
    
    
    
    (3,254
    )Accrued restructuring reserve
    
    
    (183
    )
    
    
    (205
    )Deferred revenue
    
    
    7,754
    
    
    
    (3,448
    )Net cash provided by operating activities
    
    
    53,008
    
    
    
    66,755Investing activities:Purchases of property and equipment
    
    
    (13,822
    )
    
    
    (16,634
    )Sales of investments, net
    
    
    1,521
    
    
    
    32,893Business acquired, net of cash
    
    
    (1,569
    )
    
    
    (13,755
    )Net cash (used in) provided by investing activities
    
    
    (13,870
    )
    
    
    2,504Financing activities:Disbursement of restricted cash
    
    
    (137
    )
    
    
    (69
    )Principal repayments on notes payable
    
    
    (891
    )
    
    
    (1,670
    )Principal repayments on capital lease obligations
    
    
    (2,757
    )
    
    
    (2,383
    )Proceeds from exercise of common stock options
    
    
    7,685
    
    
    
    5,557Excess tax benefits from stock-based compensation
    
    
    13,907
    
    
    
    2,147Repurchase of common stock
    
    
    (3,225
    )
    
    
    (125,040
    )Net cash provided by (used in) financing activities
    
    
    14,582
    
    
    
    (121,458
    )Effect of foreign exchange rates on cash and cash equivalents
    
    
    
    
    
    
    435Net increase (decrease) in cash and cash equivalents
    
    
    53,720
    
    
    
    (51,764
    )Cash and cash equivalents at beginning of period
    
    
    39,242
    
    
    
    98,630Cash and cash equivalents at end of period
    
    $
    92,962
    
    
    $
    46,866
 See accompanying notes.
 6




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##### 



NEUSTAR, INC.
 
 NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 2007 AND 2008
 1. DESCRIPTION OF BUSINESS AND ORGANIZATION
   
    
    Addressing.The Company enables CSPs to use critical, shared
addressing resources, such as telephone numbers, Internet top-level
domain names, and U.S. Common Short Codes.
    
    Interoperability.The Company enables CSPs to exchange and share
critical operating data so that communications originating on one
providers network can be delivered and received on the network of
another CSP. The Company also facilitates order management and work
flow processing among CSPs.
    
    Infrastructure and Other.The Company enables CSPs to manage their
networks more efficiently by centrally managing certain critical data
they use to route communications over their own networks.
 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Unaudited Interim Financial Information
   
 7




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Use of Estimates
   Reclassification
  Investments
   8




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Goodwill
 Goodwill and Other Intangible Assets
  Identifiable Intangible Assets
 Accounting for Impairment or Disposal of Long-Lived Assets
  Years
    
    MethodAcquired technologies
    
    3 to 5
    
    Straight-lineCustomer lists and relationships
    
    3 to 7
    
    VariousTrade name
    
    
    3
    
    
    Straight-line
  Impairment of Long-Lived Assets
  9




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Revenue Recognition
 Revenue Recognition
 Addressing
    Interoperability
  10




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Infrastructure and Other
  Significant Contracts
   Service Level Standards
  11




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Cost of Revenue and Deferred Costs
   Stock-Based Compensation
 Share-Based Payment
 Basic and Diluted Net Income per Common Share
  Income Taxes
 Accounting for Income
Taxes .
  Accounting for Uncertainty
in Income Taxesan interpretation of FASB Statement No. 109 i.e.
 12




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Foreign Currency
   Comprehensive Income
  Recent Accounting Pronouncements
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements
 Effective Date of FASB
Statement No. 157 ,
 13




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 3. INVESTMENTS
  June 30, 2008Amortized
    
    
    Gross Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCash reserve fund
    
    $
    25,289
    
    
    $
    3⁄4
    
    
    $
    3⁄4
    
    
    $
    25,289Auction rate securities
    
    
    40,408
    
    
    
    3⁄4
    
    
    
    (2,005
    )
    
    
    38,403$
    65,697
    
    
    $
    3⁄4
    
    
    $
    (2,005
    )
    
    $
    63,692
 December 31, 2007Amortized
    
    
    Gross Unrealized
    
    
    EstimatedCost
    
    
    Gains
    
    
    Losses
    
    
    Fair ValueCash reserve fund
    
    $
    49,851
    
    
    $
    3⁄4
    
    
    $
    (628
    )
    
    $
    49,223Auction rate securities
    
    
    50,825
    
    
    
    3⁄4
    
    
    
    3⁄4
    
    
    
    50,825$
    100,676
    
    
    $
    3⁄4
    
    
    $
    (628
    )
    
    $
    100,048
    14




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
     4. FAIR VALUE MEASUREMENTS
 Fair Value Measurements
 
    
    Level 1. Observable inputs, such as quoted prices in active markets;
    
    Level 2. Inputs, other than the quoted prices in active markets, that are observable
either directly or indirectly; and
    
    Level 3. Unobservable inputs in which there is little or no market data, which require
the reporting entity to develop its own assumptions.
  15




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Level 1
    
    Level 2
    
    Level 3
    
    TotalShort-term investments
    
    
    
    
    
    
    
    
    
    $
    25,289
    
    
    $
    25,289Long-term investments
    
    
    
    
    
    
    
    
    
    $
    38,403
    
    
    $
    38,403
  Short-term
    
    
    Long-termInvestments
    
    
    InvestmentsBalance on January 1, 2008
    
    $
    
    
    
    $
    Transfers in and/or (out) of Level 3
    
    
    49,851
    
    
    
    50,825Total losses realized/unrealized included in earnings
    
    
    (1,211
    )
    
    
    (1,317
    )Total losses included in other comprehensive income
    
    
    
    
    
    
    (2,005
    )Purchases, sales, issuances and settlements, net
    
    
    (23,351
    )
    
    
    (9,100
    )Balance on June 30, 2008
    
    $
    25,289
    
    
    $
    38,403
  5. ACQUISITION
 Webmetrics, Inc.
   16




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 6. GOODWILL AND INTANGIBLE ASSETS
  Clearinghouse
    
    
    NGMServices
    
    
    Services
    
    
    TotalBalance at December 31, 2007
    
    $
    88,148
    
    
    $
    115,945
    
    
    $
    204,093Acquisitions
    
    
    7,219
    
    
    
    
    
    
    
    7,219Impairment charge
    
    
    
    
    
    
    (29,021
    )
    
    
    (29,021
    )Balance at June 30, 2008
    
    $
    95,367
    
    
    $
    86,924
    
    
    $
    182,291
   Weighted-AverageAmortizationDecember 31,
    
    
    June 30,
    
    
    Period2007
    
    
    2008
    
    
    (In Years)(unaudited)
    
    
    (unaudited)Intangible assets:Customer lists and relationships
    
    $
    43,740
    
    
    $
    47,504
    
    
    
    5.5Accumulated amortization
    
    
    (15,463
    )
    
    
    (20,244
    )Customer lists and relationships, net
    
    
    28,277
    
    
    
    27,260Acquired technology
    
    
    17,068
    
    
    
    19,757
    
    
    
    3.3Accumulated amortization
    
    
    (8,581
    )
    
    
    (11,327
    )Acquired technology, net
    
    
    8,487
    
    
    
    8,430Trade name
    
    
    200
    
    
    
    200
    
    
    
    3.0Accumulated amortization
    
    
    (113
    )
    
    
    (146
    )Trade name, net
    
    
    87
    
    
    
    54Intangible assets, net
    
    $
    36,851
    
    
    $
    35,744
  17




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 7. NOTES PAYABLE
    8. STOCKHOLDERS EQUITY
 Stock-Based Compensation
   Stock Options
  18




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  Three Months Ended
    
    Six Months EndedJune 30,
    
    June 30,2007
    
    2008
    
    2007
    
    2008Dividend yield
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %
    
    
    0.00
    %Expected volatility
    
    
    32.19
    %
    
    
    35.82
    %
    
    
    33.36
    %
    
    
    35.82
    %Risk-free interest rate
    
    
    4.52
    %
    
    
    2.56
    %
    
    
    4.46
    %
    
    
    2.56
    %Expected life of options (in years)
    
    
    4.59
    
    
    
    4.37
    
    
    
    4.61
    
    
    
    4.37
      Weighted-AverageShares
    
    Exercise PriceOutstanding at December 31, 2007
    
    
    5,668,501
    
    
    $
    15.42Options granted
    
    
    1,128,665
    
    
    
    26.37Options exercised
    
    
    (1,453,493
    )
    
    
    3.82Options canceled
    
    
    (353,145
    )
    
    
    26.34Outstanding June 30, 2008
    
    
    4,990,528
    
    
    
    20.50Exercisable at June 30, 2008
    
    
    2,679,730
    
    
    
    13.95
  19




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Restricted Stock
  Weighted-AverageGrant DateShares
    
    Fair ValueNon-vested December 31, 2007
    
    
    75,660
    
    
    $
    31.55Granted
    
    
    224,172
    
    
    
    25.73Vested
    
    
    (20,885
    )
    
    
    31.85Forfeited
    
    
    (9,633
    )
    
    
    30.83Non-vested June 30, 2008
    
    
    269,314
    
    
    
    26.71
  Performance Vested Stock Units
  Weighted-AverageGrant DateShares
    
    Fair ValueNon-vested December 31, 2007
    
    
    303,080
    
    
    $
    32.59Granted
    
    
    286,860
    
    
    
    26.29Vested
    
    
    
    
    
    
    Forfeited
    
    
    (130,060
    )
    
    
    31.38Non-vested June 30, 2008
    
    
    459,880
    
    
    
    29.00
   20




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 Restricted Stock Units
    Phantom Stock Units
  Treasury Stock
   21




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##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
 9. BASIC AND DILUTED NET INCOME PER COMMON SHARE
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2008
    
    
    2007
    
    
    2008Computation on basic net income per common share:Net income
    
    $
    19,149
    
    
    $
    22,856
    
    
    $
    37,117
    
    
    $
    18,396Weighted average common shares outstanding 
basic
    
    
    75,825
    
    
    
    72,985
    
    
    
    75,258
    
    
    
    74,616Basic net income per common share
    
    $
    0.25
    
    
    $
    0.31
    
    
    $
    0.49
    
    
    $
    0.25Computation on diluted net income per common share:Net income
    
    $
    19,149
    
    
    $
    22,856
    
    
    $
    37,117
    
    
    $
    18,396Weighted average common shares outstanding 
basic
    
    
    75,825
    
    
    
    72,985
    
    
    
    75,258
    
    
    
    74,616Effect of dilutive securities:Stock-based awards
    
    
    3,215
    
    
    
    1,919
    
    
    
    3,779
    
    
    
    2,383Weighted average common shares outstanding 
diluted
    
    
    79,040
    
    
    
    74,904
    
    
    
    79,037
    
    
    
    76,999Diluted net income per common share
    
    $
    0.24
    
    
    $
    0.31
    
    
    $
    0.47
    
    
    $
    0.24
 10. SEGMENT INFORMATION
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2008
    
    
    2007
    
    
    2008Revenue:Clearinghouse services
    
    $
    98,148
    
    
    $
    116,879
    
    
    $
    195,054
    
    
    $
    230,430NGM services
    
    
    1,545
    
    
    
    3,330
    
    
    
    2,087
    
    
    
    7,192Total revenue
    
    $
    99,693
    
    
    $
    120,209
    
    
    $
    197,141
    
    
    $
    237,622Depreciation and amortization:Clearinghouse services
    
    $
    7,108
    
    
    $
    7,336
    
    
    $
    13,927
    
    
    $
    14,740NGM services
    
    
    2,267
    
    
    
    2,950
    
    
    
    4,512
    
    
    
    5,666Total depreciation and amortization
    
    $
    9,375
    
    
    $
    10,286
    
    
    $
    18,439
    
    
    $
    20,406Income (loss) from operations:Clearinghouse services
    
    $
    39,350
    
    
    $
    51,559
    
    
    $
    77,178
    
    
    $
    101,960NGM services
    
    
    (7,949
    )
    
    
    (11,571
    )
    
    
    (16,445
    )
    
    
    (50,943
    )Income (loss) from operations
    
    $
    31,401
    
    
    $
    39,988
    
    
    $
    60,733
    
    
    $
    51,017
 22




---



##### 



NEUSTAR, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
  December 31,
    
    
    June 30,2007
    
    
    2008Total assets:Clearinghouse services
    
    $
    449,523
    
    
    $
    376,645NGM services
    
    
    167,138
    
    
    
    143,666Total assets
    
    $
    616,661
    
    
    $
    520,311Goodwill:Clearinghouse services
    
    $
    88,148
    
    
    $
    95,367NGM services
    
    
    115,945
    
    
    
    86,924Goodwill
    
    $
    204,093
    
    
    $
    182,291Intangible assets:Clearinghouse services
    
    $
    14,973
    
    
    $
    17,497NGM services
    
    
    21,878
    
    
    
    18,247Intangible assets
    
    $
    36,851
    
    
    $
    35,744
 11. INCOME TAXES
     23




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##### 



Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
 Forward-Looking Statements
  Overview
    Critical Accounting Policies and Estimates
  24




---



##### 



Investments
 Accounting for Certain Investments in Debt and Equity Securities
 Goodwill
 Goodwill and Other
Intangible Assets
   25




---



##### 



Acquisitions
 I-View.com, Inc. (d/b/a MetaInfo)
  Webmetrics, Inc.
  26




---



##### 



Consolidated Results of Operations
 Three Months Ended June 30, 2007 Compared to Three Months Ended June 30, 2008
  Three Months Ended
    
    
    Three Months EndedJune 30,
    
    
    June 30,2007
    
    
    2008
    
    
    2007 vs. 2008$
    
    
    $
    
    
    $ Change
    
    
    % Change(unaudited)(in thousands, except per share data)Revenue:Addressing
    
    
    26,857
    
    
    
    32,268
    
    
    
    5,411
    
    
    
    20.1
    %Interoperability
    
    
    13,030
    
    
    
    16,551
    
    
    
    3,521
    
    
    
    27.0Infrastructure and other
    
    
    59,806
    
    
    
    71,390
    
    
    
    11,584
    
    
    
    19.4Total revenue
    
    
    99,693
    
    
    
    120,209
    
    
    
    20,516
    
    
    
    20.6Operating expense:Cost of revenue (excluding depreciation
and amortization shown separately below)
    
    
    23,246
    
    
    
    26,811
    
    
    
    3,565
    
    
    
    15.3Sales and marketing
    
    
    17,649
    
    
    
    20,219
    
    
    
    2,570
    
    
    
    14.6Research and development
    
    
    6,751
    
    
    
    7,754
    
    
    
    1,003
    
    
    
    14.9General and administrative
    
    
    11,271
    
    
    
    15,151
    
    
    
    3,880
    
    
    
    34.4Depreciation and amortization
    
    
    9,375
    
    
    
    10,286
    
    
    
    911
    
    
    
    9.768,292
    
    
    
    80,221
    
    
    
    11,929
    
    
    
    17.5Income from operations
    
    
    31,401
    
    
    
    39,988
    
    
    
    8,587
    
    
    
    27.3Other (expense) income:Interest and other expense
    
    
    (86
    )
    
    
    (3,106
    )
    
    
    (3,020
    )
    
    
    3,511.6Interest income
    
    
    1,146
    
    
    
    1,473
    
    
    
    327
    
    
    
    28.5Income before income taxes
    
    
    32,461
    
    
    
    38,355
    
    
    
    5,894
    
    
    
    18.2Provision for income taxes
    
    
    13,312
    
    
    
    15,499
    
    
    
    2,187
    
    
    
    16.4Net income
    
    
    19,149
    
    
    
    22,856
    
    
    
    3,707
    
    
    
    19.4
    %Net income attributable to common stockholders
per common share:Basic
    
    $
    0.25
    
    
    $
    0.31Diluted
    
    $
    0.24
    
    
    $
    0.31Weighted average common shares outstanding:Basic
    
    
    75,825
    
    
    
    72,985Diluted
    
    
    79,040
    
    
    
    74,904
 27




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##### 



Revenue
 Total revenue.
 Addressing.
 Interoperability.
 Infrastructure and other.
 Expense
 Cost of revenue.
 Sales and marketing.
 Research and development.
 General and administrative.
 Depreciation and amortization.
 28




---



##### 



Interest and other expense
 Interest income
 Provision for income taxes
 29




---



##### 



Six Months Ended June 30, 2007 Compared to Six Months Ended June 30, 2008
  Six Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2007
    
    
    2008
    
    
    2007 vs. 2008$
    
    
    $
    
    
    $ Change
    
    
    % Change(in thousands, except per share data)Revenue:Addressing
    
    $
    53,860
    
    
    $
    62,429
    
    
    $
    8,569
    
    
    
    15.9
    %Interoperability
    
    
    27,962
    
    
    
    32,991
    
    
    
    5,029
    
    
    
    18.0Infrastructure and other
    
    
    115,319
    
    
    
    142,202
    
    
    
    26,883
    
    
    
    23.3Total revenue
    
    
    197,141
    
    
    
    237,622
    
    
    
    40,481
    
    
    
    20.5Operating expense:Cost of revenue (excluding depreciation
and amortization shown separately below)
    
    
    46,324
    
    
    
    51,300
    
    
    
    4,976
    
    
    
    10.7Sales and marketing
    
    
    36,285
    
    
    
    38,943
    
    
    
    2,658
    
    
    
    7.3Research and development
    
    
    13,320
    
    
    
    15,302
    
    
    
    1,982
    
    
    
    14.9General and administrative
    
    
    22,040
    
    
    
    31,633
    
    
    
    9,593
    
    
    
    43.5Depreciation and amortization
    
    
    18,439
    
    
    
    20,406
    
    
    
    1,967
    
    
    
    10.7Impairment of goodwill
    
    
    
    
    
    
    29,021
    
    
    
    29,021
    
    
    
    100.0136,408
    
    
    
    186,605
    
    
    
    50,197
    
    
    
    36.8Income from operations
    
    
    60,733
    
    
    
    51,017
    
    
    
    (9,716
    )
    
    
    (16.0
    )Other (expense) income:Interest and other expense
    
    
    (322
    )
    
    
    (3,324
    )
    
    
    (3,002
    )
    
    
    932.3Interest income
    
    
    1,681
    
    
    
    2,841
    
    
    
    1,160
    
    
    
    69.0Income before income taxes
    
    
    62,092
    
    
    
    50,534
    
    
    
    (11,558
    )
    
    
    (18.6
    )Provision for income taxes
    
    
    24,975
    
    
    
    32,138
    
    
    
    7,163
    
    
    
    28.7Net income
    
    $
    37,117
    
    
    $
    18,396
    
    
    $
    (18,721
    )
    
    
    (50.4
    )%Net income attributable to common stockholders
per common share:Basic
    
    $
    0.49
    
    
    $
    0.25Diluted
    
    $
    0.47
    
    
    $
    0.24Weighted average common shares outstanding:Basic
    
    
    75,258
    
    
    
    74,616Diluted
    
    
    79,037
    
    
    
    76,999
 Revenue
 Total revenue.
 Addressing.
 30




---



##### 



Interoperability.
 Infrastructure and other.
 Expense
 Cost of revenue.
 Sales and marketing.
 Research and development.
 General and administrative.
 Depreciation and amortization.
 31




---



##### 



Interest and other expense
 Interest income
 Provision for income taxes
 Liquidity and Capital Resources
     Discussion of Cash Flows
 Cash flows from operations
  Cash flows from investing
  32




---



##### 



Cash flows from financing
  Recent Accounting Pronouncements
 Business Combinations
 Noncontrolling Interests in Consolidated
Financial Statements,
 Effective Date of FASB
Statement No. 157
 Off-Balance Sheet Arrangements
  
 Item 3. Quantitative and Qualitative Disclosures About Market Risk
  
 Item 4. Controls and Procedures
  33




---



##### 



34




---



##### 



PART II  OTHER INFORMATION
 
 Item 1. Legal Proceedings
  
 Item 1A. Risk Factors
  
 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
   Maximum Number(or ApproximateTotal Number of
    
    
    Dollar Value) ofShares Purchased
    
    
    Shares that MayTotal Number
    
    
    Average
    
    
    as Part of Publicly
    
    
    Yet Be Purchasedof Shares
    
    
    Price Paid
    
    
    Announced Plans
    
    
    Under the Plans orMonth
    
    Purchased(1)
    
    
    per Share
    
    
    or Programs (2)
    
    
    Programs (3)April 1 through 30, 2008
    
    
    805,497
    
    
    $
    26.25
    
    
    
    802,431
    
    
    $
    125,000,000May 1 through 31, 2008
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    June 1 through 30, 2008
    
    
    290
    
    
    
    23.44
    
    
    
    
    
    
    
    Total
    
    
    805,787
    
    
    
    26.25
    
    
    
    802,431
    
    
    $
    125,000,000
 
 (1)
    
    Includes shares of common stock tendered by employees to satisfy the employees
tax withholding obligations arising as a result of vesting of restricted stock grants
under our stock incentive plan, which shares were purchased by us based on their fair
market value on the vesting date.(2)
    
    The difference between the total number of shares purchased and the total
number of shares purchased as part of publicly announced plans or programs is 3,066
shares, all of which relate to shares surrendered to us to satisfy the employees tax
withholding obligations arising as a result of vesting of restricted stock grants under
our stock incentive plan. 35




---



##### 



(3)
    
    We announced a stock repurchase program on February 19, 2008. 
 Item 3. Defaults upon Senior Securities
  
 Item 4. Submission of Matters to a Vote of Security Holders
     Election of Directors
         Nominee
    
    For*
    

Withheld*James G. Cullen
    
    
    63,491,748
    
    
    
    3,441,451Joel P. Friedman
    
    
    63,690,641
    
    
    
    3,242,558Kenneth A. Pickar
    
    
    63,700,802
    
    
    
    3,242,397
 For*
    
    Against*
    
    Abstain*Ratification of appointment of
Ernst & Young LLP as independent
registered public accounting firm
for the fiscal year ended December
31, 2008
    
    
    66,018,623
    
    
    
    883,983
    
    
    
    30,593
 
 *
    
    The votes cast are an aggregate of the votes cast by holders of our Class A common stock and
Class B common stock, which voted together as a single class on the matters presented for a vote at
our 2008 Annual Meeting of Stockholders. 
 Item 5. Other Information
  36




---



##### 



Item 6. Exhibits
 ExhibitNo.
    
    Description3.1
    
    Restated Certificate of Incorporation, incorporated herein by reference to
Exhibit 3.1 to Amendment No. 7 to NeuStars Registration Statement on Form S-1, filed June 28, 2005
(File No. 333-123635).3.2
    
    Amended and Restated Bylaws, incorporated herein by reference to
Exhibit 3.1 to NeuStars Current Report on Form 8-K, filed July 13, 2007.10.2.3
    
    Amendment to the contractor services agreement between Canadian LNP Consortium Inc. and NeuStar, Inc., as amended.10.2.4
    
    Amendment to the contractor services agreement between Canadian LNP Consortium Inc. and NeuStar, Inc., as amended.**10.4.2
    
    Amendment to the North American Numbering Plan Administrator agreement awarded to NeuStar, Inc. by the Federal Communications Commission.10.5.2
    
    Amendments to .us Top-Level Domain Registry Management and Coordination agreement awarded to NeuStar, Inc. by the National Institute of Standards and Technology on behalf of the Department of Commerce on October 18, 2007.10.6.1
    
    Amendment to Registry Agreement by and between the Internet Corporation for Assigned Names and Numbers and NeuStar, Inc.10.7
    
    Amended and Restated Common Short Code License Agreement between the Cellular Telecommunications and Internet Association and NeuStar, Inc., dated as of June 2, 2008.**10.44
    
    Employment Agreement, made as of February 5, 2008, by and between
NeuStar, Inc. and Jeffrey Babka, incorporated herein by reference to Exhibit 99.1 to NeuStars
Current Report on Form 8-K, filed February 11, 2008.†10.45
    
    Restricted Stock Agreement under the 2005 Stock Incentive Plan,
made as of February 8, 2008, by and between NeuStar, Inc. and Jeffrey Babka, incorporated herein by
reference to Exhibit 99.2 to NeuStars Current Report on Form 8-K, filed February 11, 2008.†10.46
    
    Performance Award Agreement under the 2005 Stock Incentive Plan, made as
of February 8, 2008, by and between NeuStar, Inc. and Jeffrey Babka, incorporated herein by reference
to Exhibit 99.3 to NeuStars Current Report on Form 8-K, filed February 11, 2008.†10.47
    
    First Form of Restricted Stock Agreement, incorporated herein by reference to
Exhibit 99.2 to NeuStars Current Report on Form 8-K, filed February 28, 2008.†10.48
    
    Second Form of Restricted Stock Agreement, incorporated herein by reference
to Exhibit 99.3 to NeuStars Current Report on Form 8-K, filed February 28, 2008.†10.49
    
    Form of Performance Award Agreement, incorporated herein by reference
to Exhibit 99.1 to NeuStars Current Report on Form 8-K, filed February 28, 2008.†10.50
    
    Letter Agreement, dated May 5, 2008, by and between NeuStar, Inc. and Mark Foster.**†10.51
    
    Senior Advisor Services Agreement, dated May 5, 2008, by and between NeuStar, Inc. and Mark Foster.**†10.52
    
    Agreement Respecting Noncompetition and Nonsoliciation, dated May 5, 2008, by and between NeuStar, Inc. and Mark Foster.10.53
    
    NeuStar, Inc. Deferred Compensation Plan.†10.98
    
    Amendments to Common Short Code License Agreement between the Cellular Telecommunications and Internet Association and NeuStar, Inc.10.99.1
    
    Amendments to .us Top-Level Domain Registry Management and Coordination agreement awarded to
NeuStar, Inc. by the National Institute of Standards and Technology on behalf of the Department of Commerce on October 26, 2001.31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 †
    
    Compensatory arrangement.**
    
    Confidential treatment has been requested for portions of this document. The omitted portions of this
document have been filed with the Securities and Exchange Commission. 37




---



##### 



SIGNATURES
  NeuStar, Inc.Date: August 11, 2008
    By:
    /s/ Jeffrey A. BabkaJeffrey A. BabkaChief Financial Officer
(Principal Financial and Accounting Officer
and Duly Authorized Officer) 38




---



##### 



EXHIBIT INDEX
 ExhibitNo.
    
    Description3.1
    
    Restated Certificate of Incorporation, incorporated herein by reference to
Exhibit 3.1 to Amendment No. 7 to NeuStars Registration Statement on Form S-1, filed June 28, 2005
(File No. 333-123635).3.2
    
    Amended and Restated Bylaws, incorporated herein by reference to
Exhibit 3.1 to NeuStars Current Report on Form 8-K, filed July 13, 2007.10.2.3
    
    Amendment to the contractor services agreement between Canadian LNP Consortium Inc. and NeuStar, Inc., as amended.10.2.4
    
    Amendment to the contractor services agreement between Canadian LNP Consortium Inc. and NeuStar, Inc., as amended.**10.4.2
    
    Amendment to the North American Numbering Plan Administrator agreement awarded to NeuStar, Inc. by the Federal Communications Commission.10.5.2
    
    Amendments to .us Top-Level Domain Registry Management and Coordination agreement awarded to NeuStar, Inc. by the National Institute of Standards and Technology on behalf of the Department of Commerce on October 18, 2007.10.6.1
    
    Amendment to Registry Agreement by and between the Internet Corporation for Assigned Names and Numbers and NeuStar, Inc.10.7
    
    Amended and Restated Common Short Code License Agreement between the Cellular Telecommunications and Internet Association and NeuStar, Inc., dated as of June 2, 2008.**10.44
    
    Employment Agreement, made as of February 5, 2008, by and between
NeuStar, Inc. and Jeffrey Babka, incorporated herein by reference to Exhibit 99.1 to NeuStars
Current Report on Form 8-K, filed February 11, 2008.†10.45
    
    Restricted Stock Agreement under the 2005 Stock Incentive Plan,
made as of February 8, 2008, by and between NeuStar, Inc. and Jeffrey Babka, incorporated herein by
reference to Exhibit 99.2 to NeuStars Current Report on Form 8-K, filed February 11, 2008.†10.46
    
    Performance Award Agreement under the 2005 Stock Incentive Plan, made as
of February 8, 2008, by and between NeuStar, Inc. and Jeffrey Babka, incorporated herein by reference
to Exhibit 99.3 to NeuStars Current Report on Form 8-K, filed February 11, 2008.†10.47
    
    First Form of Restricted Stock Agreement, incorporated herein by reference to
Exhibit 99.2 to NeuStars Current Report on Form 8-K, filed February 28, 2008.†10.48
    
    Second Form of Restricted Stock Agreement, incorporated herein by reference
to Exhibit 99.3 to NeuStars Current Report on Form 8-K, filed February 28, 2008.†10.49
    
    Form of Performance Award Agreement, incorporated herein by reference
to Exhibit 99.1 to NeuStars Current Report on Form 8-K, filed February 28, 2008.†10.50
    
    Letter Agreement, dated May 5, 2008, by and between NeuStar, Inc. and Mark Foster.**†10.51
    
    Senior Advisor Services Agreement, dated May 5, 2008, by and between NeuStar, Inc. and Mark Foster.**†10.52
    
    Agreement Respecting Noncompetition and Nonsoliciation, dated May 5, 2008, by and between NeuStar, Inc. and Mark Foster.10.53
    
    NeuStar, Inc. Deferred Compensation Plan.†10.98
    
    Amendments to Common Short Code License Agreement between the Cellular Telecommunications and Internet Association and NeuStar, Inc.10.99.1
    
    Amendments to .us Top-Level Domain Registry Management and Coordination agreement awarded to
NeuStar, Inc. by the National Institute of Standards and Technology on behalf of the Department of Commerce on October 26, 2001.31.1
    
    Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 †
    
    Compensatory arrangement.**
    
    Confidential treatment has been requested for portions of this document. The omitted portions of this
document have been filed with the Securities and Exchange Commission.